The MAS of Singapore has recently announced stringent AML and CFT controls on digital payment token (DPT) service providers.
According to Moody’s, these regulatory changes aim to mitigate the risk of money laundering within the sector by bolstering controls and safeguarding the assets of DPT service providers’ customers.
Digital payment tokens encompass various assets, including cryptocurrencies, often secured by blockchain technology.
DPT service providers in Singapore currently fall under the regulatory purview of the Payment Services Act. Amendments made in April 2024 expanded the Act to include provisions for user protection and financial stability. As part of these amendments, there is a transition period from April 2024 to January 2025. During this time, DPT service providers must update their license applications, ensure compliance with the new AML/CFT controls, and undergo external audits to continue operating beyond January 2025.
The recent amendments to the Payment Services Act have broadened the spectrum of regulated activities. These now include custodial services offered by DPT service providers, facilitation or transmission of DPTs between accounts, facilitating DPT exchanges, and cross-border money transfers between different countries. MAS also reserves the authority to impose additional requirements concerning AML/CFT controls, user protection, and financial stability on DPT service providers.
The realm of cryptocurrency transactions has been a significant facilitator of financial crime. Chainalysis’ 2023 report disclosed that cryptocurrency-related crime amounted to $22.2 billion globally the previous year. Notable trends include a rise in funds sent from ransomware to gambling platforms and the emergence of new methods for laundering money, such as mixers or bridges.
Cryptocurrency and digital payment tokens offer users a level of transactional anonymity. Coupled with comparatively lighter regulatory oversight, this makes them susceptible to abuse for financial crimes like money laundering and terrorism financing (ML/TF). To combat this, regulatory bodies worldwide have introduced more stringent AML requirements and licensing regimes.
While larger entities may have the resources to implement robust compliance frameworks, smaller fintech, DPT, or cryptocurrency businesses might lack such capabilities. However, the expanded regulatory oversight in Singapore necessitates a more comprehensive compliance framework for service providers, particularly focusing on a risk-based approach to assess and mitigate AML/CFT risks.
Companies operating in the cryptocurrency and fintech sectors need to address key questions when evaluating their compliance frameworks. These include understanding the entities they’re transacting with, monitoring changes in AML/CFT risks over time, and identifying hidden risks such as those associated with shell companies.
MAS’ increased regulatory oversight aligns with a global trend towards stricter AML/CFT compliance requirements in cryptocurrency and fintech. Companies operating in this space must stay informed and adapt to evolving regulations to protect consumers and ensure compliance.
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